##### Table of Contents





­
    ­
   UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, DC 20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year ended
    December 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File
    No. 1-14164
  SUN-TIMES MEDIA GROUP,
    INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware

95-3518892(State or other jurisdiction
    of

(I.R.S. Employerincorporation or
    organization)

Identification Number)350 North Orleans Street, 10-SChicago, Illinois

60654(Address of Principal Executive
    Office)

(Zip
    Code)   Registrants telephone number, including area code(312) 321-2299
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class:

Name of Each Exchange on Which Registered:Class A Common Stock par value $.01 per share

New York Stock ExchangePreferred Share Purchase Rights

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
    None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE




---



##### 





TABLE OF
    CONTENTS
  SUN-TIMES
    MEDIA GROUP, INC.
  2007
    FORM 10-K
   
 PagePART IItem 1.


Business


4Item 1A.


Risk Factors


10Item 1B.


Unresolved Staff Comments


19Item 2.


Properties


19Item 3.


Legal Proceedings


20Item 4.


Submission of Matters to a Vote of Security
    Holders


27PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


27Item 6.


Selected Financial Data


30Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


31Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


46Item 8.


Financial Statements and Supplementary Data


47Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


47Item 9A.


Controls and Procedures


47Item 9B.


Other Information


49PART IIIItem 10.


Directors and Executive Officers of the
    Registrant


52Item 11.


Executive Compensation


52Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


52Item 13.


Certain Relationships and Related Transactions


52Item 14.


Principal Accountant Fees and Services


52PART IVItem 15.


Exhibits and Financial Statement Schedules


52Significant SubsidiariesConsent of Independent Registered Public Accounting FirmCertification of Chief Executive Officer Pursuant to Rule 13a-14(a)Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) and Section 1350Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) and Section 1350   2




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##### Table of Contents



FORWARD-LOOKING
    STATEMENTS
  Form 10-K 10-K)
  
    the resolution of certain United States tax matters;
    changes in the preferences of readers and advertisers,
    particularly in response to the growth of Internet-based media;
    actions of competitors, including price changes and the
    introduction of competitive service offerings;
    changes in prevailing economic conditions, particularly as they
    affect Chicago, Illinois and its metropolitan area;
    actions of the Companys controlling stockholder;
    the impact of insolvency filings of Hollinger Inc., The
    Ravelston Corporation Limited (Ravelston) and
    Ravelston Management, Inc. (RMI) and certain related
    entities;
    adverse developments in pending litigation involving the Company
    and its affiliates, and current and former directors and
    officers;
    actions arising from continuing investigations by the Securities
    and Exchange Commission (SEC) and other government
    agencies in the United States and Canada principally of matters
    identified by a special committee of independent directors (the
    Special Committee) formed on June 17, 2003 to
    investigate related party transactions and other payments made
    to certain executives of the Company and its controlling
    stockholder, Hollinger Inc., and other affiliates in connection
    with the sale of certain of the Companys assets and other
    transactions. The Company filed with the SEC the full text of
    the report of the Special Committee on such investigation as an
    exhibit to a current report on
    Form 8-K
    on August 31, 2004, as amended by a current report on Form
    8-K/A filed
    with the SEC on December 15, 2004 (the Report).
    the effects of recent and future outsourcing efforts
    the effects of changing costs or availability of raw materials,
    primarily newsprint;
    changes in laws or regulations, including changes that affect
    the way business entities are taxed;
    changes in accounting principles or in the way such principles
    are applied; and
    other matters identified in Item 1A
     Risk Factors.  10-K 10-K
 3




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##### Table of Contents



PART I  Item 1.
    Business  Overview
  Chicago Sun-Times,
    Post-Tribune, SouthtownStar
    General
  (312) 321-2299.
  Business
    Strategy
  Evaluate Strategic Alternatives. and/or
  Aggressively Target Cost Reductions and Operating
    Efficiencies.
  Increase Market Share by Leveraging the Companys
    Leading Market Position. Chicago Sun-Times.
 4




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Publish Relevant and Trusted High Quality
    Newspapers.
  Strong Corporate Governance Practices.
  Internet Initiatives. www.suntimes.com www.searchchicago.com/autos, www.searchchicago.com/homes www.neighborhoodcircle.com www.yourseason.com
  Recent
    Developments
    and/or
         5




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##### Table of Contents



Sun-Times
    Media Group
  Chicago Sun-Times Chicago
    Sun-Times
  Chicago Sun-Times SouthtownStar Post-Tribune Herald News Courier News Beacon News
  Sources of Revenue.
  Year Ended December 31,2007


2006


2005(Dollars in thousands)Advertising

$
287,198



77
%

$
324,607



77
%

$
357,820



78
%Circulation


77,629



21
%


85,235



20
%


89,527



19
%Job printing and other


7,431



2
%


10,537



3
%


11,919



3
%Total

$
372,258



100
%

$
420,379



100
%

$
459,266



100
%     Advertising. Chicago Sun-Times Chicago Sun-Times
 6




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Circulation. Chicago Sun-Times
    CirculationDaily(1)


Saturday


Sunday


ABC Audit Report Period(2)Chicago Sun-Times (Chicago, IL)


349,968



247,327



281,129


26 weeks ending 9/25/05Daily Southtown (Tinley Park, IL)(3)


41,831



36,271



45,582


26 weeks ending 3/26/06The Beacon News (Aurora, IL)


26,858



26,180



28,646


52 weeks ending 4/01/07The Courier News (Elgin, IL)


13,229



12,665



13,278


52 weeks ending 4/01/07The Herald News (Joliet, IL)


41,373



40,396



44,488


52 weeks ending 4/01/07Lake County News Sun (Waukegan, IL)


19,112
(4)






21,100


52 weeks ending 4/01/07Naperville Sun (Naperville, IL)


16,743







15,912


52 weeks ending 4/01/07Post-Tribune (Merrillville, IN)


65,912



63,296



67,855


40 weeks ending 4/01/07(5)Pioneer Press Group (Glenview, IL)


166,985
(6)









27 weeks ending 4/01/07(7)The Doings Group (Hinsdale, IL)


16,981
(6)









27 weeks ending 4/01/07(7)Pioneer Press unaudited (Glenview, IL)


7,552
(8)









UnauditedFree Distribution Products (Suburban Chicago)


367,339
(9)









Unaudited     (1)
    
    Daily circulation is defined as a Monday through Friday average(2)
    
    Circulation data is from the most currently available ABC audit
    reports for the period noted(3)
    
    On November 18, 2007, the Daily Southtownand the
    Starmerged and formed the SouthtownStar(4)
    
    All weekend circulation is included in Sunday circulation(5)
    
    Audit period was changed from June ending to March ending(6)
    
    Wednesday or Thursday circulation; weekly publications(7)
    
    Audit period was changed from September ending to March ending(8)
    
    Average unaudited circulation for 3 Pioneer Press weeklies that
    are not members of ABC(9)
    
    Average unaudited circulation for 16 free distribution papers in
    Chicago suburbs that are not members of ABC  Chicago Sun-Times Chicago Sun-Times Chicago Sun-Times
 7




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Chicago Sun-Times
  Daily Southtown Star SouthtownStar
  Other Publications and Business
    Enterprises. Suntimes.com www.chicagojobs.com www.searchchicago.com/autos
  Sales and Marketing. on-site Chicago
    Sun-Times
  Distribution. Chicago Sun-Times Chicago Sun-Times
  Printing.
  Competition. Chicago Sun-Times Chicago Tribune
 8




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Chicago Sun-Times
  Employees and Labor Relations.
    Raw Materials.
  Reorganization Activities.
      Charges for workforce reductions

$
6,352Cash payments


(7
)Accrued expenses

$
6,345   Environmental
   9




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Seasonality
    Intellectual
    Property
    Available
    Information
    1-800-SEC-0330. (http://www.sec.gov).
  www.thesuntimesgroup.com. Form 10-K, Form 10-Q, Form 8-K
    www.thesuntimesgroup.com.
  Item 1A.
    Risk
    Factors   10




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Risks
    Relating to the Companys Business and the
    Industry
  The
    Company has substantial potential tax liabilities.
        Competition
    in the newspaper industry originates from many sources. The
    advent of new technologies and industry practices, such as the
    provision of newspaper content on free Internet sites, may
    continue to result in decreased advertising and circulation
    revenue.
   11




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The
    Companys revenue is dependent upon economic conditions in
    the Companys target markets and is seasonal.
      The
    Companys publications have experienced declines in
    circulation in the past and may do so in the
    future.
    The
    Company has implemented a reorganization strategy that may not
    result in profitability.
    The
    Company may not be able to realize the value of certain
    investments at their carrying value.
  back-up
   12




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The
    Companys senior management team is required to devote
    significant attention to matters arising from the evaluation of
    strategic alternatives.
  and/or
    The
    outsourcing of significant business processes may expose the
    Company to significant financial and customer service
    risk.
   13




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Sun-Times
    Media Group, Inc. is a holding company and relies on its
    subsidiaries to meet its financial obligations.
    The
    Companys internal control over financial reporting is not
    effective as of December 31, 2007 and weaknesses in the
    Companys internal controls and procedures could have a
    material adverse effect on the Company.
   Controls and Procedures.
      The
    Company may experience labor disputes, which could slow down or
    halt production or distribution of the Companys newspapers
    or other publications.
    Newsprint
    represents the Companys single largest raw material
    expense and changes in the price of newsprint could affect net
    income.
   14




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All of
    the Companys operations are concentrated in one geographic
    area.
    Risks
    Relating to Control and Improper Conduct by Controlling
    Stockholder
  The
    Companys controlling stockholder may cause actions to be
    taken that might not be in the best interests of the
    Companys other stockholders.
           Legal
    Proceedings  Receivership and CCAA Proceedings in
    Canada Involving the Ravelston Entities.
   15




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##### Table of Contents



and/or
  The
    Company may face interference by its controlling stockholder
    that will prevent it from recovering on its
    claims.
   16




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The
    results of ongoing SEC investigations may have a material
    adverse effect on the Companys business and results of
    operations.
   Legal
    Proceedings Form 10-K Form 10-Q and/or
  Pending
    litigation could have a material adverse effect on the
    Company.
  and/or  Legal Proceedings
  There
    could be a change of control of the Company through a change in
    control of Hollinger Inc. under circumstances not approved by
    the independent directors of the Company.
       17




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##### Table of Contents



The Companys controlling
    stockholder may cause actions to be taken that are not supported
    by the Companys Board of Directors or management and which
    might not be in the best interests of the Companys other
    stockholders
  The
    Company is a party to a Business Opportunities Agreement with
    Hollinger Inc., the terms of which limit the Companys
    ability to pursue certain business opportunities in certain
    countries.
  start-up, start-up,
    Hollinger
    Inc. sought protection from its creditors through insolvency
    proceedings which may result in a change of control or other
    adverse impacts on the Company.
  7 8 7 8
       18




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Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Chicago Sun-Times. Chicago Sun-Times 15-year
     19




---



##### Table of Contents



Item 3.
    Legal
    Proceedings  Litigation
    Involving Controlling Stockholder, Senior Management and
    Directors
  Hollinger International Inc. v. Hollinger
    Inc., et al. No. 04C-0698
  7 8
   20




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##### Table of Contents



Black-Amiel (Black-Amiel),
    Black v.
    Hollinger International Inc.
  Hollinger International
    Inc. v. Conrad M. Black, Hollinger Inc., and 504468 N.B.
    Inc.
   21




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##### Table of Contents



 Federal Indictment of Ravelston and Former
    Company Officials
    No. 3518-VCS,
  Hollinger
    International Inc. v. Ravelston, RMI and Hollinger
    Inc.
      Black v.
    Breeden, et al.
     22




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##### Table of Contents



United
    States Securities and Exchange Commission v. Hollinger
    International Inc.
  Form 10-K Form 10-Q
    United
    States Securities and Exchange Commission v. Conrad M.
    Black, et al.
       23




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##### Table of Contents



Receivership
    and CCAA Proceedings in Canada Involving the Ravelston
    Entities
   Litigation
    Involving Controlling Stockholder, Senior Management and
    Directors
   Federal
    Indictment of Ravelston and Former Company Officials
    Black-Amiel,
   24




---



##### Table of Contents



 Hollinger
    Inc. CCAA Proceedings
        Federal
    Indictment of Ravelston and Former Company Officials
  Hollinger
    Inc. CCAA Proceedings
         25




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##### Table of Contents



Federal
    Criminal Actions Against Ravelston and Former Company
    Officials
    Receivership and CCAA Proceedings in Canada
    involving the Ravelston Entities.
    CanWest
    Arbitration
   26




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##### Table of Contents



CanWest
    and The National Post Company v. Hollinger Inc., Hollinger
    International Inc., the Ravelston Corporation Limited and
    Ravelston Management Inc.
  National Post
    Other
    Matters
      Other Matters
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities   27




---



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CashPrice Range


DividendsCalendar Period

High


Low


per Share2006First Quarter

$
9.54


$
8.25


$
0.05Second Quarter


8.40



6.95



0.05Third Quarter


8.35



6.58



0.05Fourth Quarter


6.99



4.65



0.052007First Quarter

$
6.05


$
3.82


$
Second Quarter


6.94



4.82



Third Quarter


5.83



2.18



Fourth Quarter


2.87



0.85



2008Through March 5, 2008

$
2.45


$
0.70


$
         Recent
    Sales of Unregistered Securities
    Purchases
    of Equity Securities by the Issuer and Affiliated
    Purchasers
   28




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Stockholder
    Return Performance Graph
    Comparison
    of Cumulative Total Return of the
    Company, Peer Groups, Industry Indexes
    and/or Broad
    Markets
  COMPARISON OF
    5-YEAR
    CUMULATIVE TOTAL RETURN
 AMONG SUN-TIMES MEDIA GROUP, INC.,
 NYSE MARKET INDEX AND HEMSCOTT GROUP INDEX
  
      Fiscal Year Ended December 31,2002


2003


2004


2005


2006


2007Sun-Times Media Group, Inc.



100.00




156.53




184.31




135.23




75.59




33.87Publishing-Newspapers



100.00




120.98




117.00




92.75




90.49




67.91NYSE Market Index



100.00




129.55




146.29




158.37




185.55




195.46   Source:
    Hemscott Inc.
    4833 Rugby Avenue
    Bethesda, MD 20814
    Phone:
    (301) 760-2609
    Fax:
    (240) 465-8989
   29




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##### Table of Contents



Item 6.
    Selected
    Financial Data  Year Ended December 31,2007


2006


2005


2004


2003(In thousands, except per share amounts)Statement of Operations Data(1):Operating revenue:Advertising

$
287,198


$
324,607


$
357,820


$
362,355


$
352,029Circulation


77,629



85,235



89,527



91,632



88,077Job printing


4,785



8,260



9,194



8,648



7,903Other


2,646



2,277



2,725



3,412



4,325Total operating revenue


372,258



420,379



459,266



466,047



452,334Operating costs and expenses


480,405



425,451



438,460



465,777



458,951Depreciation and amortization


32,074



33,878



30,721



31,109



37,683Operating loss


(140,221
)


(38,950
)


(9,915
)


(30,839
)


(44,300
)Interest expense


(603
)


(704
)


(935
)


(19,824
)


(30,835
)Interest and dividend income


17,811



16,813



11,625



11,427



14,557Other income (expense), net(2)


(27,844
)


2,642



(3,839
)


(87,790
)


58,236Loss from continuing operations before income taxes


(150,857
)


(20,199
)


(3,064
)


(127,026
)


(2,342
)Income tax benefit (expense)


420,888



(57,431
)


(42,467
)


(29,462
)


(112,168
)Income (loss) from continuing operations


270,031



(77,630
)


(45,531
)


(156,488
)


(114,510
)Income from discontinued operations (net of income taxes)


1,599



20,957



33,965



390,228



36,153Net income (loss)

$
271,630


$
(56,673
)

$
(11,566
)

$
233,740


$
(78,357
)Diluted earnings per share:Earnings (loss) from continuing operations

$
3.35


$
(0.91
)

$
(0.50
)

$
(1.73
)

$
(1.31
)Earnings from discontinued operations


0.02



0.25



0.37



4.31



0.41Net earnings (loss)(3)

$
3.37


$
(0.66
)

$
(0.13
)

$
2.58


$
(0.90
)Cash dividends per share paid on Class A and Class B
    Common Stock

$



$
0.20


$
5.70


$
0.20


$
0.20   As of December 31,2007


2006


2005


2004


2003(In thousands)Balance Sheet Data(1):Working capital (deficiency)(4)

$
114,484


$
(392,332
)

$
(369,572
)

$
(153,338
)

$
(390,403
)Total assets(5)


791,586



899,859



1,065,328



1,738,898



1,785,104Long-term debt


38



6,908



8,067



14,333



309,651Total stockholders equity (deficit)


(75,009
)


(359,783
)


(169,851
)


152,186



4,926     (1)
    
    The Companys Sun-Times News Group newspaper operations are
    on a 52 week/53 week accounting cycle. This generally
    results in a reporting of 52 weeks or 364 days in each
    annual period. However, the year ended December 31, 2006
    contains 53 weeks. This additional week added approximately
    $5.0 million to advertising revenue, $1.5 million to
    circulation revenue, $6.6 million to total operating
    revenue, $6.1 million in total operating expenses and
    $0.5 million in operating income. The Statement of
    Operations Data above and the 30




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following discussions include the impact of the 53rd week. Note
    that Corporate and Indemnification, investigation and litigation
    costs, net are presented on a calendar year basis in all years.(2)
    
    The principal components of Other income (expense),
    net are presented below:  2007


2006


2005


2004


2003(In thousands)Loss on extinguishment of debt

$
(60
)

$



$



$
(60,381
)

$
(37,291
)Write-down of investments


(12,200
)










(365
)


(7,700
)Write-down and expenses related to FDR Collection










(795
)






(6,796
)Gain (loss) on Participation Trust and CanWest Debentures,
    including exchange gains and losses














(22,689
)


83,681Foreign currency gains (losses), net


(16,569
)


2,943



(2,171
)


1,634



1,285Legal settlement










(800
)






Settlements with former directors and officers














1,718



31,547Gain (loss) on sale of investments


1,019



(76
)


2,254



1,709



2,129Gain on sale of non-operating assets














1,090



Write-down of property, plant and equipment


















(5,622
)Equity in losses of affiliates, net of dividends received


(184
)


(259
)


(1,752
)


(3,897
)


(2,957
)Other


150



34



(575
)


(6,609
)


(40
)$
(27,844
)

$
2,642


$
(3,839
)

$
(87,790
)

$
58,236   (3)
    
    The Companys diluted earnings per share are calculated on
    the following number of shares outstanding (in thousands):
    2007  80,661, 2006  85,681,
    2005  90,875, 2004  90,486,
    2003  87,311.(4)
    
    Excluding escrow deposits and restricted cash, assets and
    liabilities of operations to be disposed of and current
    installments of long-term debt.(5)
    
    Includes goodwill and intangible assets, net of accumulated
    amortization, of $212.5 million at December 31, 2007,
    $216.9 million at December 31, 2006,
    $221.1 million at December 31, 2005,
    $225.5 million at December 31, 2004, and
    $231.9 million at December 31, 2003.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  General
    Overview
  Chicago
    Sun-Times, Post-Tribune, SouthtownStar, Naperville Sun
   31




---



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Developments
    Since December 31, 2007
      and/or
   32




---



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Significant
    Transactions in 2007
    back-up
     33




---



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Chicago Sun-Times Chicago Sun-Times
         34




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##### Table of Contents



Incurred SinceYear Ended December 31,


Inception through2007


2006


2005


December 31, 2007(5)(In thousands)Special Committee investigation costs(1)

$
6,216


$
4,743


$
19,044


$
63,680Litigation costs(2)


1,533



6,376



3,601



28,478Indemnification fees and costs(3)


47,776



18,949



23,363



109,714Recoveries(4)


(47,718
)


(47,475
)


(32,375
)


(127,568
)$
7,807


$
(17,407
)

$
13,633


$
74,304     (1)
    
    Costs and expenses arising from the Special Committees
    investigation. These amounts include the fees and costs of the
    Special Committees members, counsel, advisors and experts.(2)
    
    Largely represents legal and other professional fees to defend
    the Company in litigation that has arisen as a result of the
    issues the Special Committee has investigated, including costs
    to defend the counterclaims of Hollinger Inc. and Black in the
    Delaware Litigation. In 2006, these costs include a
    $3.5 million settlement paid to Tweedy, Browne &
    Company, LLC in the second quarter in settlement for legal fees.(3)
    
    Represents amounts the Company has been required to advance in
    fees and costs to indemnified parties, including the indirect
    controlling stockholders and their affiliates and associates who
    are defendants in the litigation brought by the Company or
    resulting from criminal proceedings. See Item 3
     Legal Proceedings  Black v.
    Hollinger International Inc.(4)
    
    Represents recoveries directly resulting from the investigation
    activities which include a 2007 settlement, negotiated and
    approved by the Special Committee, with Radler, (including his
    wholly-owned company, North American Newspapers Ltd. f/k/a F.D.
    Radler Ltd.) and the publishing companies Horizon and Bradford.
    The Company received $63.4 million in cash to settle the
    following: (i) claims by the Company against Radler,
    Horizon and Bradford, (ii) potential additional claims
    against Radler related to the Special Committees findings
    regarding incorrectly dated stock options and (iii) amounts
    due from Horizon and Bradford. The Company has recorded
    $47.7 million of the settlement, as a recovery, within
    Indemnification, investigation and litigation costs, net
    of recoveries and $7.2 million in Interest and
    dividend income in the Consolidated Statement of
    Operations for the year ended December 31, 2007. The
    remaining $8.5 million represents the collection of certain
    notes receivable. In 2006, recoveries include approximately
    $47.5 million in a settlement with certain of the
    Companys directors and officers insurance carriers net of
    approximately $2.5 million paid to Cardinal Value Equity
    Partners L.P.s counsel as attorney fees directly
    attributable to this settlement. This settlement was approved by
    the Delaware Court of Chancery in November 2006, and received by
    the Company in January 2007. In 2005, the Company received
    approximately $30.3 million in a settlement with Torys LLP
    (Torys) and $2.1 million in recoveries of
    indemnification payments from Black. Excludes settlements with
    former directors and officers, pursuant to a restitution
    agreement reached in November 2003, of approximately
    $1.7 million and $31.5 million for the years ended
    December 31, 2004 and 2003, respectively, which are
    included in Other income (expense), net in the
    Consolidated Statements of Operations. See Notes 17, 21(a)
    and 22(a) to the consolidated financial statements.(5)
    
    The Special Committee was formed on June 17, 2003. These
    amounts represent the cumulative net costs from that date.   35




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
      Accruals
    for Contingent Tax Liabilities
      Investments
  back-up
   36




---



##### Table of Contents



Allowance
    for Doubtful Accounts
    Potential
    Impairment of Goodwill, Intangibles and Long-Lived
    Assets
    Valuation
    Allowance  Deferred Tax Assets
    Defined
    Benefit Pension Plans and Postretirement Benefits
     37




---



##### Table of Contents



2007
    Compared with 2006
  Income
    (Loss) from Continuing Operations  Overview
    Operating
    Revenue and Operating Loss  Overview
    Operating
    Revenue
        Operating
    Costs and Expenses
   38




---



##### Table of Contents



Chicago Sun-Times
       39




---



##### Table of Contents



Interest
    and Dividend Income
    Other
    Income (Expense), Net
    Income
    Taxes
    2006
    Compared with 2005
  Loss from
    Continuing Operations  Overview
   40




---



##### Table of Contents



Operating
    Revenue and Operating Loss  Overview
    Operating
    Revenue
        Operating
    Costs and Expenses
         41




---



##### Table of Contents



Interest
    and Dividend Income
    Other
    Income (Expense), Net
   42




---



##### Table of Contents



Income
    Taxes
    Liquidity
    and Capital Resources
  Cash
    and Cash Equivalents
  back-up
  Investments
      Corporate
    Structure
   43




---



##### Table of Contents



Factors
    That Are Expected to Affect Liquidity in the Future
  Potential
    Cash Outlays Related to Accruals for Income Tax Contingent
    Liabilities
    December 31,2007(In thousands)Income taxes payable

$
1,027Deferred income tax liabilities


58,343Other tax liabilities


597,206$
656,576       Potential
    Cash Outflows Related to Operations
    and/or
    Other
   44




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##### Table of Contents



Cash
    Flows
        Debt
    Leases
    Capital
    Expenditures
    Dividends
    and Other Commitments
    Off-Balance
    Sheet Arrangements
   45




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##### Table of Contents



Commercial
    Commitments and Contractual Obligations
      Due in1 Year or


Due between


Due between


Due overTotal


Less


1 and 3 Years


3 and 5 Years


5 Years(In thousands)Long-term debt

$
38


$
35


$
3


$



$
Operating leases


50,316



5,560



8,695



7,664



28,397Purchase obligations(1)


27,300



9,100



18,200







Total contractual cash obligations(2)

$
77,654


$
14,695


$
26,898


$
7,664


$
28,397     (1)
    
    Pursuant to a ten-year distribution agreement, which is
    terminable upon three years notice. Amounts shown
    represent the base fixed fee component of the distribution
    agreement for three years ($9,100 per year).(2)
    
    Refer to Potential Cash Outlays Related to Accruals for
    Income Tax Contingent Liabilities for a discussion of FIN
    48 tax liabilities. Such amounts are excluded from this table.   Legal Proceedings
  Recent
    Accounting Pronouncements
      Item 7A.
    Quantitative
    and Qualitative Disclosure About Market Risk  Newsprint.
 46




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##### Table of Contents



Inflation.
  Interest Rates.
  Foreign Exchange Rates.
  Item 8.
    Financial
    Statements and Supplementary Data  10-K.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure   Item 9A.  Controls
    and Procedures (a)
    Evaluation
    of Disclosure Controls and Procedures  Rule 13a-15(e)
  10-K
  Rules 13a-15(e) 15d-15(e)
  (b)
    Managements
    Report on Internal Control over Financial
    Reporting   47




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##### Table of Contents



Internal Control  Integrated
    Framework
  Advertising Revenue Recognition:
  
    The controls related to the review and monitoring of advertising
    rates were not operating effectively.
    The review and approval controls related to the advertising
    billing reconciliation process were not operating effectively.
    Within the computer system used to process advertising revenue
    transactions, controls over access to the program and data were
    ineffectively designed and roles were not adequately defined and
    assigned to enforce an effective segregation of duties.   Income Taxes:
      (c)
    Changes
    in Internal Control over Financial Reporting and Other
    Remediation   48




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##### Table of Contents




    IT General Controls:  Written policies and
    procedures related to the Companys information technology
    (IT) general controls over program development, program changes,
    computer operations and access to programs and data were
    developed. The Companys IT employees received training in
    the new policies and procedures.
    Ineffective Control Environment:  A significant
    process redesign and documentation effort related to the
    Companys most significant business processes was initiated
    and implemented. These efforts included a redesign of key
    processes in the Company and the formalization and documentation
    of key responsibilities and processes throughout the Company.
    The Company has established written policies and procedures in
    several key areas and has conducted training sessions with the
    appropriate employees. An outside service provider developed an
    ethics and code of conduct training program incorporating the
    importance of maintaining effective internal control over
    financial reporting and the role employees and managers have in
    such controls. Key managers and employees in certain functions
    have completed the training program.    Item 9B.
    Other
    Information   49




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
     Internal Control  Integrated Framework
           50




---



##### Table of Contents



Internal Control  Integrated
    Framework
  KPMG
    LLP
    51




---



##### Table of Contents



PART III  Item 10.
    Directors
    and Executive Officers of the Registrant  Regulation S-K, Regulation S-K,
  Regulation S-K
    www.thesuntimesgroup.com.
  Item 11.
    Executive
    Compensation  Regulation S-K
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Regulation S-K
  Item 13.
    Certain
    Relationships and Related Transactions  Regulation S-K
  Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Documents filed as part of this report
  Consolidated Financial Statements and Supplemental
    Schedules.
 52




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##### Table of Contents



List of Exhibits
    ExhibitNo.

Description of Exhibit

Prior Filing3
.1

Restated Certificate of Incorporation.

Incorporated by reference to Exhibit 3.1 to the Annual Report on
    Form 10-K for the year ended December 31, 2003 filed on January
    18, 2005.3
.1.2

Certificate of Amendment to Restated Certificate of
    Incorporation.

Incorporated by reference to Exhibit 3.1.2 to the Quarterly
    Report on Form 10-Q for the quarter ended June 30, 2006 filed on
    August 9, 2006.3
.2

Bylaws of Hollinger International Inc., as amended.

Incorporated by reference to Exhibit 3.2 to the Annual Report on
    Form 10-K for the year ended December 31, 2003 filed on January
    18, 2005.4
.1

Rights Agreement between Hollinger International Inc. and Mellon
    Investor Services LLC as Rights Agent, dated as of
    January 25, 2004.

Incorporated by reference to Exhibit 4.1 to Item 5 of the
    Current Report on Form 8-K dated January 26, 2004.4
.2

Amendment No. 1 to the Rights Agreement between Hollinger
    International Inc. and Mellon Investor Services LLC as Rights
    Agent, dated May 10, 2005.

Incorporated by reference to Exhibit 4.1 to Item 1.01 of the
    Current Report on Form 8-K dated May 11, 2005.4
.3

Amendment No. 2 to the Rights Agreement between Sun-Times
    Media Group, Inc. (f/k/a Hollinger International Inc.) and
    Mellon Investor Services LLC as Rights Agent, dated
    July 23, 2007.

Incorporated by reference to Exhibit 4.1 to Item 1.01 of the
    Current Report on Form 8-K dated July 26, 2007.10
.1

Facilitation Agreement by and between Hollinger International
    Inc., Hollinger Canadian Newspapers, Limited Partnership,
    3815668 Canada Inc., Hollinger Canadian Publishing Holdings Co.,
    HCN Publications Company and CanWest Global Communications Corp.
    dated as of October 7, 2004.

Incorporated by reference to Exhibit 10.2 of the Annual Report
    on Form 10-K for the year ended December 31, 2003 filed on
    January 18, 2005.10
.2

Agreement dated November 15, 2003 between Conrad M. Black
    and Hollinger International Inc.

Incorporated by reference to Exhibit 99.1 to Item 5 of the
    Current Report on Form 8-K dated January 6, 2004.10
.3

Business Opportunities Agreement between Hollinger Inc. and
    Hollinger International Inc., as amended and restated as of
    February 7, 1996.

Incorporated by reference to Exhibit 10.19 to the Annual Report
    on Form 10-K for the year ended December 31, 2003 filed on
    January 18, 2005.10
.4

Agreement, dated as of May 12, 2005, by and between
    Hollinger International Inc. and RSM Richter Inc., in its
    capacity as court appointed receiver and monitor of Ravelston
    Corporation Limited and Ravelston Management, Inc.

Incorporated by reference to Exhibit 10.7 to the Annual Report
    on Form 10-K for the year ended December 31, 2005 filed on March
    31, 2006.10
.5

Amended Agreement of Compromise and Release of Outside Director
    Defendants Conditioned on Entry of Appropriate Order dated
    June 27, 2005.

Incorporated by reference to Exhibit 10.8 to the Annual Report
    on Form 10-K for the year ended December 31, 2005 filed on March
    31, 2006.10
.6

Amended and Restated Employment Agreement by and between Gordon
    A. Paris and Hollinger International Inc. dated as of
    January 31, 2006.

Incorporated by reference to Exhibit 10.14 to the Annual Report
    on Form 10-K for the year ended December 31, 2005 filed on March
    31, 2006. 53




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##### Table of Contents



ExhibitNo.

Description of Exhibit

Prior Filing10
.7

Amended and Restated Deferred Stock Unit Agreement between
    Gordon A. Paris and Hollinger International Inc. dated as of
    January 31, 2006.

Incorporated by reference to Exhibit 10.21 to the Annual Report
    on Form 10-K for the year ended December 31, 2005 filed on March
    31, 2006.10
.8

Form of Hollinger International Inc. Deferred Stock Unit
    Agreement.

Incorporated by reference to Exhibit 99.1 to Item 8.01 of the
    Current Report on Form 8-K dated February 22, 2005.10
.9

Amended Form of Hollinger International Inc. Deferred Stock Unit
    Agreement.

Incorporated by reference to Exhibit 99.2 to Item 1.01 of the
    Current Report on Form 8-K dated January 25, 2006.10
.10

Summaries of Principal Terms of 2004 Key Employee Retention Plan
    and Key Employee Severance Program.

Incorporated by reference to Exhibit 10.25 to the Annual Report
    on Form 10-K for the year ended December 31, 2003 filed on
    January 18, 2005.10
.11

Hollinger International Inc. 1999 Stock Incentive Plan.

Incorporated by reference to Annex A to the Report on Form DEF
    14A dated March 24, 1999.10
.12

Hollinger International Inc. 1997 Stock Incentive Plan.

Incorporated by reference to Annex A to the Report on Form DEF
    14A dated March 28, 1997.10
.13

American Publishing Company 1994 Stock Option Plan.

Incorporated by reference to Exhibit 10.10 to the Registration
    Statement on Form S-1 (No. 33-74980).10
.14

Agreement of Compromise and Release among Cardinal Value Equity
    Partners, L.P., Hollinger International Inc., Dwayne O. Andreas,
    Richard R. Burt, Raymond G. Chambers, Henry A. Kissinger,
    Marie-Josee Kravis, Shmuel Meitar, Robert S. Strauss, A. Alfred
    Taubman, James R. Thompson, Lord Weidenfeld of Chelsea, Leslie
    H. Wexner, Gordon A. Paris, Graham W. Savage and Raymond G.H.
    Seitz dated May 4, 2005.

Incorporated by reference to Exhibit 10.1 to Item 1.01 of the
    Current Report on Form 8-K dated May 5, 2005.10
.15

Hollinger International Inc. 2006 Long-Term Incentive Plan.

Incorporated by reference to Exhibit 99.1 to Item 1.01 of the
    Current Report on Form 8-K dated January 25, 2006.10
.16

Separation Agreement between Sun-Times Media Group, Inc. and
    Gordon A. Paris dated September 13, 2006.

Incorporated by reference to Exhibit 10.1 to the Quarterly
    Report on Form 10-Q for the quarter ended September 30, 2006
    filed on November 9, 2006.10
.17

Amendment, dated November 14, 2006, to Separation Agreement
    between Sun-Times Media Group, Inc. and Gordon A. Paris dated
    September 13, 2006.

Incorporated by reference to Exhibit 99.2 to Item 5.02 of the
    Current Report on Form 8-K dated November 15, 2006.10
.18

Separation Agreement between Sun-Times Media Group, Inc. and
    James Van Horn dated September 13, 2006.

Incorporated by reference to Exhibit 10.2 to the Quarterly
    Report on Form 10-Q for the quarter ended September 30, 2006
    filed on November 9, 2006.10
.19

Separation Agreement between Sun-Times Media Group, Inc. and
    Robert T. Smith dated September 13, 2006.

Incorporated by reference to Exhibit 10.3 to the Quarterly
    Report on Form 10-Q for the quarter ended September 30, 2006
    filed on November 9, 2006.10
.20

Description of Material Terms of Compensation of Cyrus F.
    Freidheim, Jr. dated November 14, 2006.

Incorporated by reference to Exhibit 99.1 to Item 5.02 of the
    Current Report on Form 8-K dated November 15, 2006. 54




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##### Table of Contents



ExhibitNo.

Description of Exhibit

Prior Filing10
.21

Description of Material Terms of Compensation of William
    Barker III dated February 28, 2007.

Incorporated by reference to Exhibit 10.35 of the Annual Report
    on Form 10-K for the year ended December 31, 2006.10
.22

Key Employee Severance Program Participation Agreement between
    Sun-Times Media Group, Inc. and William G. Barker III dated
    April 10, 2007.

Incorporated by reference to Exhibit 10.5 to the Quarterly
    Report for the quarter ended March 31, 2007.10
.23

Release and Settlement Agreement between F. David Radler and
    Sun-Times Media Group, Inc., dated March 16, 2007.

Incorporated by reference to Exhibit 99.1 of the Current Report
    on Form 8-K filed on March 22, 2007.10
.24

Release and Settlement Agreement between North America
    Newspapers Ltd. f/k/a FD Radler Ltd. and Sun-Times Media Group,
    Inc., dated March 16, 2007.

Incorporated by reference to Exhibit 99.2 of the Current Report
    on Form 8-K filed on March 22, 2007.10
.25

Release and Settlement Agreement between Bradford Publishing
    Company and Sun-Times Media Group, Inc., dated March 16,
    2007.

Incorporated by reference to Exhibit 99.3 of the Current Report
    on Form 8-K filed on March 22, 2007.10
.26

Release and Settlement Agreement between Horizon Publications
    Inc., et al. and Sun-Times Media Group, Inc., dated
    March 16, 2007.

Incorporated by reference to Exhibit 99.4 of the Current Report
    on Form 8-K filed on March 22, 2007.10
.27

Employment Agreement between Sun-Times Media Group, Inc. and
    James D. McDonough, dated December 14, 2006.

Incorporated by reference to Exhibit 10.36 of the Annual Report
    on Form 10-K for the year ended December 31, 2006.10
.28

Key Employee Severance Program Participation Agreement between
    Sun-Times Media Group, Inc. and Thomas L. Kram, dated
    October 20, 2006.

Incorporated by reference to Exhibit 10.37 of the Annual Report
    on Form 10-K for the year ended December 31, 2006.10
.29

Distribution Agreement between The Sun-Times Company and Chicago
    Tribune Company, dated August 8, 2007.

Incorporated by reference to Exhibit 10.1 to the Quarterly
    Report for the quarter ended September 30, 2007.21
.1

Significant Subsidiaries of Sun-Times Media Group, Inc.23
.1

Consent of Independent Registered Public Accounting Firm.31
.1

Certification of Chief Executive Officer pursuant to
    Rule 13a-14(a).31
.2

Certification of Chief Financial Officer pursuant to
    Rule 13a-14(a).32
.1

Certificate of Chief Executive Officer pursuant to
    Rule 13a-14(b)
    and Section 1350 of Chapter 63 of Title 18 of the
    United States Code.32
.2

Certificate of Chief Financial Officer pursuant to
    Rule 13a-14(b)
    and Section 1350 of Chapter 63 of Title 18 of the
    United States Code.  55




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##### Table of Contents



SIGNATURES
  Form 10-K
     By:
    /s/  CYRUS
    F. FREIDHEIM, JR.   President and Chief Executive Officer
      Signature

Title

Date/s/  CYRUS
    F. FREIDHEIM, JR.Cyrus
    F. Freidheim, Jr.

President and Chief Executive Officer Director (Principal
    Executive Officer)

March 12, 2008/s/  WILLIAM
    G. BARKER IIIWilliam
    G. Barker III

Senior Vice President and Chief Financial Officer (Principal
    Financial Officer)

March 12, 2008/s/  THOMAS
    L. KRAMThomas
    L. Kram

Controller and Chief Accounting Officer (Principal Accounting
    Officer)

March 12, 2008/s/  RAYMOND
    G. H. SEITZRaymond
    G. H. Seitz

Chairman of the Board of Directors

March 12, 2008/s/  WILLIAM
    AZIZWilliam
    Aziz

Director

March 12, 2008/s/  BRENT
    D. BAIRDBrent
    D. Baird

Director

March 12, 2008/s/  ALBRECHT
    W.A. BELLSTEDTAlbrecht
    W.A. Bellstedt

Director

March 12, 2008/s/  HERBERT
    A. DENTONHerbert
    A. Denton

Director

March 12, 2008Peter
    Dey

Director

March 12, 2008/s/  EDWARD
    HANNAHEdward
    Hannah

Director

March 12, 2008 56




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##### Table of Contents



Signature

Title

Date/s/  GORDON
    A. PARISGordon
    A. Paris

Director

March 12, 2008/s/  GRAHAM
    W. SAVAGEGraham
    W. Savage

Director

March 12, 2008/s/  G.
    WESLEY VOORHEISG.
    Wesley Voorheis

Director

March 12, 2008  57




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            Employers Accounting for Defined
    Benefit Pension and Other Postretirement Plansan amendment
    of FASB Statements No. 87, 88, 106, and 132(R) Share-Based Payment.
  Internal Control  Integrated Framework issued by
    the Committee of Sponsoring Organizations of the Treadway
    Commission
  /s/  KPMG
    LLP    58




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  CONSOLIDATED
    BALANCE SHEETS
 December 31,
    2007 and 2006
  2007


2006(In thousands, except share data)ASSETSCurrent assets:Cash and cash equivalents

$
142,533


$
186,318Accounts receivable, net of allowance for doubtful accounts of
    $12,276 in 2007 and $10,267 in 2006


73,031



73,346Inventories


7,937



9,643Escrow deposits and restricted cash


35,641



26,809Recoverable income taxes


16,509



34,672Other current assets


7,034



62,135Total current assets


282,685



392,923Loan to affiliate






33,685Investments


42,249



6,422Property, plant and equipment, net of accumulated depreciation


163,355



178,368Intangible assets, net of accumulated amortization


88,235



92,591Goodwill


124,301



124,301Prepaid pension asset


89,512



49,645Other assets


1,249



21,924Total assets

$
791,586


$
899,859LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Current installments of long-term debt

$
35


$
867Accounts payable and accrued expenses


112,621



110,168Amounts due to related parties


8,852



7,995Income taxes payable and other tax liabilities


1,027



627,385Deferred revenue


10,060



10,698Total current liabilities


132,595



757,113Long-term debt, less current installments


3



6,041Deferred income tax liabilities


58,343



26,974Other tax liabilities


597,206



385,436Other liabilities


78,448



84,078Total liabilities


866,595



1,259,642Stockholders equity (deficit):Class A common stock, $0.01 par value. Authorized
    250,000,000 shares; 88,008,022 and 65,308,636 shares
    issued and outstanding, respectively, at December 31, 2007
    and 88,008,022 and 64,997,456 shares issued and
    outstanding, respectively, at December 31, 2006


880



880Class B common stock, $0.01 par value. Authorized
    50,000,000 shares; 14,990,000 shares issued and
    outstanding in 2007 and 2006


150



150Additional paid-in capital


501,138



502,127Accumulated other comprehensive income (loss):Cumulative foreign currency translation adjustments


3,878



6,576Unrealized gain on marketable securities


141



66Pension adjustment


(29,718
)


(43,412
)Accumulated deficit


(325,451
)


(597,050
)151,018



(130,663
)Class A common stock in treasury, at cost 
    22,699,386 shares at December 31, 2007 and
    23,010,566 shares at December 31, 2006


(226,027
)


(229,120
)Total stockholders equity (deficit)


(75,009
)


(359,783
)Total liabilities and stockholders equity (deficit)

$
791,586


$
899,859    59




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
 For the
    Years Ended December 31, 2007, 2006 and 2005
  2007


2006


2005(In thousands, except per share data)Operating revenue:Advertising

$
287,198


$
324,607


$
357,820Circulation


77,629



85,235



89,527Job printing


4,785



8,260



9,194Other


2,646



2,277



2,725Total operating revenue


372,258



420,379



459,266Operating costs and expenses:Cost of sales:Wages and benefits


108,569



110,329



110,458Newsprint and ink


50,619



67,196



72,004Other


81,092



80,883



77,588Total cost of sales


240,280



258,408



260,050Selling, general and administrative:Sales and marketing


70,378



66,499



73,537Other operating costs


82,282



66,244



47,834Corporate expenses


79,658



51,707



43,406Indemnification, investigation and litigation costs, net of
    recoveries


7,807



(17,407
)


13,633Total selling, general and administrative


240,125



167,043



178,410Depreciation


20,407



21,992



18,664Amortization


11,667



11,886



12,057Total operating costs and expenses


512,479



459,329



469,181Operating loss


(140,221
)


(38,950
)


(9,915
)Other income (expense):Interest expense


(603
)


(704
)


(935
)Interest and dividend income


17,811



16,813



11,625Other income (expense), net


(27,844
)


2,642



(3,839
)Total other income (expense)


(10,636
)


18,751



6,851Loss from continuing operations before income taxes


(150,857
)


(20,199
)


(3,064
)Income tax expense (benefit)


(420,888
)


57,431



42,467Income (loss) from continuing operations


270,031



(77,630
)


(45,531
)Discontinued operations, net of income taxes:Income from operations of business segments disposed of






199



1,062Gain from disposal of business segments


1,599



20,758



32,903Income from discontinued operations


1,599



20,957



33,965Net income (loss)

$
271,630


$
(56,673
)

$
(11,566
)Basic earnings (loss) per share:Earnings (loss) from continuing operations

$
3.36


$
(0.91
)

$
(0.50
)Earnings from discontinued operations


0.02



0.25



0.37Net earnings (loss)

$
3.38


$
(0.66
)

$
(0.13
)Diluted earnings (loss) per share:Earnings (loss) from continuing operations

$
3.35


$
(0.91
)

$
(0.50
)Earnings from discontinued operations


0.02



0.25



0.37Net earnings (loss)

$
3.37


$
(0.66
)

$
(0.13
)Weighted average shares outstanding:Basic


80,446



85,681



90,875Diluted


80,661



85,681



90,875    60




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 For the
    Years Ended December 31, 2007, 2006 and 2005
  2007


2006


2005(In thousands)Restated(Note 1(q))Net income (loss)

$
271,630


$
(56,673
)

$
(11,566
)Other comprehensive income (loss):Foreign currency translation adjustments, net of related tax
    provision of $106 (2006  net of related tax provision
    of $4; 2005  net of related tax benefit of $757)


(2,698
)


(1,948
)


(17,215
)Reclassification adjustment for realized foreign exchange
    (gains) losses upon the substantial reduction of net investment
    in foreign operations






(11,571
)


1,241(2,698
)


(13,519
)


(15,974
)Unrealized gains (losses) on marketable securities arising
    during the year, net of a related tax provision of $2
    (2006  net of related tax provision of $4;
    2005  net of related tax benefit of $616)


75



16



(951
)Reclassification adjustment for realized gains reclassified out
    of accumulated other comprehensive income (loss), net of related
    taxes of $nil (2006  net of related tax provision of
    $661; 2005  net of related tax benefit of $1,851)






870



(3,212
)75



886



(4,163
)Pension adjustment, net of related tax provision of $8,166
    (2006  net of related tax provision of $3,117;
    2005  net of related tax benefit of $1,430 and
    recovery of minority interest of $36)


13,694



4,675



(821
)11,071



(7,958
)


(20,958
)Comprehensive income (loss)

$
282,701


$
(64,631
)

$
(32,524
)    61




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 For the
    Years Ended December 31, 2007, 2006 and 2005
  AccumulatedCommon


Additional


OtherStock


Paid-In


Comprehensive


Accumulated


TreasuryClass A & B


Capital


Income (Loss)


Deficit


Stock


Total(In thousands)Balance at January 1, 2005

$
1,030


$
500,006


$
21,456


$
(221,497
)

$
(148,809
)

$
152,186Stock-based compensation






653















653Dividends payable in cash  Class A and
    Class B, $3.20 per share














(290,166
)






(290,166
)Minimum pension liability adjustment










(821
)










(821
)Change in cumulative foreign currency translation adjustments










(15,974
)










(15,974
)Change in unrealized loss on securities, net










(4,163
)










(4,163
)Net loss














(11,566
)






(11,566
)Balance at December 31, 2005


1,030



500,659



498



(523,229
)


(148,809
)


(169,851
)Stock-based compensation






2,580















2,580Dividends payable in cash  Class A and
    Class B, $0.15 per share














(12,678
)






(12,678
)Pension adjustment related to the adoption of
    SFAS No. 158










(29,310
)










(29,310
)Minimum pension liability adjustment










4,675











4,675Change in cumulative foreign currency translation adjustments










(13,519
)










(13,519
)Change in unrealized gain on securities, net










886











886Repurchase of common stock


















(95,744
)


(95,744
)Issuance of treasury stock in respect of stock options exercised
    and deferred stock units






(1,112
)






(4,470
)


15,433



9,851Net loss














(56,673
)






(56,673
)Balance at December 31, 2006


1,030



502,127



(36,770
)


(597,050
)


(229,120
)


(359,783
)Stock-based compensation






2,432















2,432Issuance of treasury stock in respect of deferred stock units






(3,421
)






(31
)


3,093



(359
)Minimum pension liability adjustment










13,694











13,694Change in cumulative foreign currency translation adjustments










(2,698
)










(2,698
)Change in unrealized gain on securities, net










75











75Net income














271,630







271,630Balance at December 31, 2007

$
1,030


$
501,138


$
(25,699
)

$
(325,451
)

$
(226,027
)

$
(75,009
)    62




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 For the
    Years Ended December 31, 2007, 2006 and 2005
  2007


2006


2005(In thousands)Cash Flows From Continuing Operating Activities:Net income (loss)

$
271,630


$
(56,673
)

$
(11,566
)Income from discontinued operations


(1,599
)


(20,957
)


(33,965
)Income (loss) from continuing operations


270,031



(77,630
)


(45,531
)Adjustments to reconcile income (loss) from continuing
    operations to net cash provided by (used in) continuing
    operating activities:Depreciation and amortization


32,074



33,878



30,721Deferred income taxes


147,454



9,777



29,903Collection of proceeds from directors and officers insurance
    settlement


50,000







Loss on sale of newspaper operations


13,603







Write-off of capitalized direct response advertising costs


15,191







Reduction of tax liabilities


(586,686
)






Bad debt expense related to loan to subsidiary of Hollinger
    Inc.


33,685







Equity in losses of affiliates


184



259



1,752Loss (gain) on sales of investments


(1,019
)


76



(2,511
)Gain on sales of property, plant and equipment


(269
)


(80
)


(202
)Write-down of investments


12,200







298Write-down of property, plant and equipment


1,487



882



Other


11,997



(1,497
)


(2,547
)Changes in current assets and liabilities, net of dispositions:Accounts receivable


3,715



18,338



(6,028
)Inventories


1,706



2,957



(1,147
)Other current assets


240



(47,890
)


8,366Recoverable income taxes


18,163



(34,672
)


Accounts payable and accrued expenses


(18,892
)


(18,680
)


(8,464
)Income taxes payable and other tax liabilities


11,724



61,390



(142,089
)Deferred revenue and other


(12,113
)


(7,776
)


(8,347
)Cash provided by (used in) continuing operating activities


4,475



(60,668
)


(145,826
)Cash Flows From Investing Activities:Purchase of property, plant and equipment


(11,645
)


(9,134
)


(16,626
)Proceeds from sale of property, plant and equipment


4,808



231



281Investments, intangibles and other non-current assets


(6,523
)


(7,592
)


(9,174
)Collection of notes receivable pursuant to settlement with a
    former officer


8,460







Sale of short-term investments, net






57,650



474,400Purchase of investments


(48,200
)






Proceeds on disposal of investments and other assets


2,039



18,237



4,550Proceeds from the sale of newspaper operations, net of cash
    disposed


2,664



86,609



38,677Other


370



(266
)


Cash provided by (used in) investing activities


(48,027
)


145,735



492,108Cash Flows From Financing Activities:Repayment of debt and premium on debt extinguishment


(6,976
)


(1,193
)


(6,304
)Escrow deposits and restricted cash


(5,366
)


3,678



(2,569
)Net proceeds from issuance of equity securities






9,851



Repurchase of common stock






(95,744
)


Dividends paid






(17,212
)


(516,858
)Other


3,046



(1,528
)


(3,140
)Cash used in financing activities


(9,296
)


(102,148
)


(528,871
)Net cash provided by (used in) discontinued operations:Operating cash flows






(387
)


54,622Investing cash flows










(4,680
)Financing cash flows






7,143



53,717Net cash provided by discontinued operations






6,756



103,659Effect of exchange rate changes on cash


9,063



(1,745
)


2,523Net decrease in cash and cash equivalents


(43,785
)


(12,070
)


(76,407
)Cash and cash equivalents at beginning of year


186,318



198,388



274,795Cash and cash equivalents at end of year

$
142,533


$
186,318


$
198,388    63




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 For the
    Years Ended December 31, 2007, 2006 and 2005
  (1)
    Significant
    Accounting Policies  (a)
    Description
    of Business    (b)
    Principles
    of Presentation and Consolidation        (c)
    Use of
    Estimates    (d)
    Cash
    Equivalents   64




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (e)
    Accounts
    Receivable, Net of Allowance for Doubtful Accounts    2007


2006


2005(In thousands)Balance at beginning of year

$
10,267


$
11,756


$
11,654Provision


4,448



3,820



4,598Write-offs


(3,113
)


(6,419
)


(5,886
)Recoveries and other


674



1,110



1,390Balance at end of year

$
12,276


$
10,267


$
11,756   (f)
    Inventories  first-in,
  (g)
    Long-Lived
    Assets        (h)
    Derivative
    Financial Instruments   65




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (i)
    Investments            (j)
    Goodwill
    and Other Intangible Assets         66




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (k)
    Pension
    Plans and Other Postretirement Benefits  General
            Long-Term
    Rate of Return on Assets
        Discount
    Rate
     67




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (l)
    Income
    Taxes    (m)
    Revenue
    Recognition    (n)
    Foreign
    Currency Translation    (o)
    Earnings
    (Loss) per Share    (p)
    Stock-based
    Compensation   68




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Year Ended December 31,2007


2006


2005(In thousands)Total stock-based compensation expense included in income (loss)
    from continuing operations

$
2,432


$
2,580


$
653     2005(In thousands, exceptper share amounts)Loss from continuing operations, as reported

$
(45,531
)Add: stock-based compensation expense, as reported


653Deduct: pro forma stock-based compensation expense


(1,384
)Pro forma loss from continuing operations

$
(46,262
)Basic loss from continuing operations per share, as reported

$
(0.50
)Diluted loss from continuing operations per share, as reported

$
(0.50
)Pro forma basic loss from continuing operations per share

$
(0.51
)Pro forma diluted loss from continuing operations per share

$
(0.51
)   (q)
    Reclassifications
    and Correction of Error       69




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (2)
    Dispositions
    and Discontinued Operations             70




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2006


2005(In thousands)Operating revenue:Advertising

$
4,101


$
75,246Circulation


972



12,908Job printing and other


569



12,684Total operating revenue


5,642



100,838Operating costs and expenses:Newsprint


383



8,624Compensation


2,896



41,653Other operating costs


2,041



31,404Depreciation and amortization


159



2,493Total operating costs and expenses


5,479



84,174Operating income

$
163


$
16,664     (3)
    Reorganization
    Activities     71




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Charges for workforce reductions

$
6,352Cash payments


(7
)Accrued expenses

$
6,345   (4)
    Other
    Current Assets      (5)
    Investments  December 31,2007


2006(In thousands)Available-for-sale securities, at fair value:Asset-backed commercial paper(a)

$
36,000


$
Equity securities


114



80Other non-marketable investments, at cost


4,876



4,32840,990



4,408Equity accounted companies, at equity:Internet related companies


7



44Other


1,252



1,9701,259



2,014$
42,249


$
6,422   December 31,2007


2006(In thousands)Gross unrealized holding gains on available-for-sale securities:Equity securities

$
158


$
78Less  deferred tax expense


(17
)


(12
)Unrealized gains on available-for-sale securities included in
    stockholders equity (deficit)

$
141


$
66   (a) back-up
 72




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         73




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (6)
    Property,
    Plant and Equipment  December 31,2007


2006(In thousands)Land

$
9,053


$
9,510Building and leasehold interests


93,681



101,122Machinery and equipment


204,192



194,903Construction in progress


2,599



6,428Less: accumulated depreciation


(146,170
)


(133,595
)$
163,355


$
178,368     (7)
    Goodwill
    and Intangible Assets    Total(In thousands)Balance as of January 1, 2006

$
124,104Adjustments of excess acquisition reserves


(69
)Acquisition


266Balance as of December 31, 2006 and 2007

$
124,301     December 31,2007


2006(In thousands)Subscriber and advertiser relationships:Gross carrying amount

$
135,880


$
135,880Accumulated amortization


(47,645
)


(43,289
)Net book value

$
88,235


$
92,591    74




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (8)
    Other
    Assets  December 31,2007


2006(In thousands)Deferred financing costs

$



$
123Capitalized direct response advertising costs, net of
    accumulated amortization (Note 16(b))






16,193Receivable from Bradford Publishing Co. (Note 22(f))






3,430Other


1,249



2,178$
1,249


$
21,924   (9)
    Accounts
    Payable and Accrued Expenses  December 31,2007


2006(In thousands)Accounts payable

$
34,067


$
30,821Accrued expenses:Labor and benefits


28,665



30,543Accrued interest






30Professional fees


9,848



19,070Current pension and postretirement liability


6,478



6,455Other


33,563



23,249$
112,621


$
110,168   (10)
    Long-Term
    Debt  December 31,2007


2006(In thousands)Hollinger International Publishing Inc.:9% Senior Notes due 2010

$



$
6,000Other debt


38



90838



6,908Less:Current portion included in current liabilities


35



867$
3


$
6,041      75




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (11)
    Leases      (In thousands)2008

$
5,5602009


4,7602010


3,9352011


3,7842012


3,880Thereafter


28,397$
50,316   (12)
    Financial
    Instruments  (a)
    Fair
    Values        (b)
    Derivative
    Financial Instruments    (13)
    Stockholders
    Equity  Preferred
    Stock
    Class A
    and Class B Common Stock
   76




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Shareholder
    Rights Plan (SRP)
          Common
    Stock Repurchases and Issuance of Treasury Stock
  Form 10-K.
   77




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Dividends
    and Dividends Payable
      (14)
    Stock-Based
    Compensation  Stock
    Options
         78




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Form S-8
    Weighted-


Weighted-Average


Average


AggregateNumber of


Exercise


Remaining


IntrinsicOptions


Price


Term


Value(Months)


(In thousands)Options outstanding at December 31, 2006


698,460


$
8.11Options granted





$
Options exercised





$







$
Options forfeited


(302,735
)

$
(8.01
)Options expired





$
Options outstanding at December 31, 2007


395,725


$
8.19



42


$
Options exercisable at December 31, 2007


395,725


$
8.19



42


$
     Options





Options ExercisableNumber


Outstanding





NumberOutstanding at


Weighted-Average





Exercisable atDecember 31,


Remaining


Weighted Average


December 31,


Weighted-AverageRange of Exercise Prices

2007


Contractual Life


Exercise Price


2007


Exercise Price$ 6.69 - $ 8.67


293,093



3.88 years


$
7.45



293,093


$
7.45$10.17 - $10.66


102,632



2.53 years


$
10.29



102,632


$
10.29$ 6.69 - $10.66


395,725



3.53 years


$
8.19



395,725


$
8.19     Year Ended December 31,2007


2006


2005(In thousands)Total intrinsic value of stock options exercised

$



$
1,047


$
    79




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Deferred
    Stock Units
         80




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Weighted-Average





AggregateNumber of


Grant Date


Weighted-Average


IntrinsicUnits


Fair Value


Remaining Term


Value(Months)


(In thousands)Unvested at December 31, 2006


215,335


$
7.97DSUs granted


2,631,954


$
1.50DSUs vested


(513,342
)

$
(4.63
)





$
1,551DSUs forfeited


(17,672
)

$
(9.99
)Unvested at December 31, 2007


2,316,275


$
1.34



24


$
5,096   Year Ended December 31,2007


2006


2005(In thousands)Total fair value of DSUs granted

$
3,938


$
975


$
4,036Intrinsic value of DSUs vested

$
1,551


$
1,481


$
483   (15)
    Employee
    Benefit Plans  Defined
    Contribution Plans
    Defined
    Benefit Plans
     81




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          2007


2006


2005(In thousands)Service cost

$
1,305


$
1,526


$
2,169Interest cost


18,456



18,653



17,625Expected return on plan assets


(26,158
)


(25,609
)


(22,471
)Amortization of losses


2,666



2,825



3,126Settlement and curtailment (gain) loss


458



(67
)


Amortization of transitional obligation


112



112



112Amortization of prior service costs


183



198



190Net periodic benefit cost (credit)

$
(2,978
)

$
(2,362
)

$
751  82




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006(In thousands)Benefit obligation at the beginning of the year

$
348,179


$
342,036Service cost


1,305



1,526Interest cost


18,456



18,653Participant contributions


5



81Currency translation differences


43,770



(189
)Settlements and transfers


(1,380
)


1,152Actuarial (gain) loss


(16,029
)


17,780Curtailment gain






(224
)Benefits paid


(30,934
)


(32,636
)Benefit obligation at the end of the year


363,372



348,179Fair value of plan assets at the beginning of the year


351,624



348,296Actual return on plan assets


34,628



31,337Currency translation differences


51,271



24Settlements and transfers


(1,388
)


1,190Employer contributions


7,249



3,332Participant contributions


5



81Benefits paid


(30,934
)


(32,636
)Fair value of plan assets at the end of the year


412,455



351,624Funded status

$
49,083


$
3,445     December 31,2007


2006(In thousands)Prepaid pension asset

$
89,512


$
49,645Pension liability included in current liabilities

$
(3,993
)

$
(4,489
)Pension liability included in noncurrent liabilities

$
(36,436
)

$
(41,711
)Accumulated other comprehensive loss, before income taxes

$
59,070


$
78,826     December 31,2007


2006(In thousands)Net actuarial losses

$
56,907


$
76,521Prior service costs


1,240



1,270Net transition obligation


923



1,035$
59,070


$
78,826    83




---



##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        December 31,2007


2006(In thousands)Projected benefit obligation

$
111,084


$
117,229Accumulated benefit obligation

$
107,841


$
113,754Fair value of plan assets

$
70,655


$
71,029     December 31,2007


2006(In thousands)Projected benefit obligation

$
252,288


$
230,950Accumulated benefit obligation

$
252,288


$
230,950Fair value of plan assets

$
341,800


$
280,595   Assumptions
    December 31,2007

2006

2005Discount rate

5.50 - 6.25%

5.00 - 5.75%

5.50 - 6.25%Expected return on plan assets

5.50 - 8.00%

5.50 - 8.25%

5.25 - 8.25%Compensation increase

3.0%

3.0%

3.0% - 4.0%     Pension Benefits2007


2006Discount rate


5.67
%


5.18
%Rate of compensation increase


2.53
%


2.47
%     Pension Benefits2007


2006


2005Discount rate


5.67
%


5.18
%


5.49
%Expected long-term return on plan assets


6.53
%


7.22
%


7.23
%Rate of compensation increase


2.53
%


2.47
%


3.02
%    84




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Pension
    Plan Assets
    Plan Assets atDecember 31,Asset Category

2007


2006Equity securities


55.9
%


48.2
%Debt securities


38.2
%


46.7
%Other


5.9
%


5.1
%Total


100.0
%


100.0
%         
    Historically competitive investment returns and risks;
    Stability and financial soundness of companies offering funds;
    Desirability of offering funds run by different
    managers; and
    Managers investment philosophy and style.    Postretirement
    and Postemployment Benefits
     85




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005(In thousands)Service cost

$
10


$
27


$
21Interest cost


1,103



1,357



1,325Amortization of gains


(1,782
)


(788
)


(907
)Net periodic postretirement benefit cost (credit)

$
(669
)

$
596


$
439     December 31,2007


2006(In thousands)Accumulated postretirement benefit obligation at the beginning
    of the year

$
29,476


$
36,754Service cost


10



27Interest cost


1,103



1,357Actuarial gains


(2,495
)


(6,171
)Benefits paid


(2,146
)


(2,032
)Currency translation differences


4,977



(459
)Accumulated postretirement benefit obligation at the end of the
    year


30,925



29,476Fair value of plan assets at the end of the year


2,008



2,005Unfunded status

$
28,917


$
27,471     December 31,2007


2006(In thousands)Unfunded status, included in current liabilities

$
2,400


$
1,966Unfunded status, included in other liabilities

$
26,517


$
25,505Unrecognized net gain, included in accumulated other
    comprehensive income, net of tax

$
11,515


$
6,011        86




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006Healthcare cost trend assumed next year


7.4
%


8
%Rate to which the cost trend is assumed to decline (the ultimate
    trend rate)


5
%


5
%Year that rate reaches ultimate trend rate


2012



2012     Pension
    and Other Benefit Payments
    Pension


PostretirementYear

Benefits


Benefits(In thousands)2008

$
33,489


$
2,4002009

$
31,109


$
2,4752010

$
30,549


$
2,5342011

$
29,993


$
2,5822012

$
29,554


$
2,6152013-2017

$
139,462


$
13,159   (16)
    Other
    Operating Costs and Corporate Expenses  Items Included
    in Other Operating Costs
    Year Ended December 31,2007


2006


2005(In thousands)Reorganization costs (Note 3)

$
6,352


$
9,201


$
Severance expense


405



2,642



117Write-off of capitalized direct response advertising costs(a)


15,191







Write-off of capitalized software(b)


1,487



882



Costs related to outsourcing of certain newspaper distribution
    activities, including severance


1,770







  87




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Write-off of Capitalized Direct Response Advertising
    Costs
  93-7 (SOP 93-7).
  SOP 93-7
  Write-off of Capitalized Software
    Items Included
    in Corporate Expenses
    Year Ended December 31,2007


2006


2005(In thousands)Bad debt expense related to loan to subsidiary of Hollinger
    Inc.(a)

$
33,685


$



$
Loss on sale of newspaper operations(b)


13,603







Severance expense


(176
)


6,954



1,125Unclaimed property costs






2,000



   (a)
    Bad Debt
    Expense Related to Loan to Subsidiary of Hollinger
    Inc.    (b)
    Loss on
    Sale of Newspaper Operations    (17)
    Indemnification,
    Investigation and Litigation Costs, Net of Recoveries     88




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Incurred SinceYear Ended December 31,


Inception through2007


2006


2005


December 31, 2007(5)(In thousands)Special Committee investigation costs(1)

$
6,216


$
4,743


$
19,044


$
63,680Litigation costs(2)


1,533



6,376



3,601



28,478Indemnification fees and costs(3)


47,776



18,949



23,363



109,714Recoveries(4)


(47,718
)


(47,475
)


(32,375
)


(127,568
)$
7,807


$
(17,407
)

$
13,633


$
74,304     (1)
    
    Costs and expenses arising from the Special Committee
    investigation. These amounts include the fees and costs of the
    Special Committees members, counsel, advisors and experts.(2)
    
    Largely represents legal and other professional fees to defend
    the Company in litigation that has arisen as a result of the
    issues the Special Committee has investigated, including costs
    to defend the counterclaims of Hollinger Inc. and Black in
    Hollinger International Inc. v. Conrad M. Black,
    Hollinger Inc., and 504468 N.B. Inc.described in the
    Companys previous filings (the Delaware
    Litigation).(3)
    
    Represents amounts the Company has been required to advance in
    fees and costs to indemnified parties, including former officers
    and directors and their affiliates and associates who are
    defendants in the litigation brought by the Company or in the
    criminal proceedings. See Note 21(a) Black v.
    Hollinger International Inc.(4)
    
    Represents recoveries including $47.7 million related to a
    settlement with Radler described above, $47.5 million in a
    settlement with certain of the Companys directors and
    officers insurance carriers in 2006, $30.3 million in a
    settlement with Torys LLP in 2005 and $2.1 million in
    recoveries of indemnification payments from Black in 2005.
    Excludes settlements with former directors and officers,
    pursuant to a restitution agreement reached in November 2003, of
    $1.7 million and $31.5 million recognized in 2004 and
    2003, respectively, which were recorded in Other income
    (expense), net, and interest related to various recoveries
    and settlements of $15.8 million which was recorded in
    Interest and dividend income. Total recoveries,
    including interest, aggregate $176.6 million. In addition,
    the Radler settlement resulted in the collection of
    $8.5 million of notes receivable.(5)
    
    The Special Committee was formed on June 17, 2003. These
    amounts represent the cumulative net costs from that date. 89




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   (18)
    Other
    Income (Expense), Net  December 31,2007


2006


2005(In thousands)Loss on extinguishment of debt(a)

$
(60
)

$



$
Expenses related to FDR Collection(b)










(795
)Write-down of investments(c)


(12,200
)






Foreign currency gains (losses), net


(16,569
)


2,943



(2,171
)Legal settlement










(800
)Gain (loss) on sale of investments


1,019



(76
)


2,254Equity in losses of affiliates


(184
)


(259
)


(1,752
)Other


150



34



(575
)$
(27,844
)

$
2,642


$
(3,839
)     (a)
    
    In 2007, the Company retired $6.0 million of its
    9% Senior Notes and recognized a premium for early
    redemption. See Note 10.(b)
    
    In 2005, the Company paid the State of New York approximately
    $0.8 million to settle a claim that the Company was liable
    for sales taxes related to acquisitions of papers and other
    memorabilia of President Franklin Delano Roosevelt.(c)
    
    In 2007, the Company recorded a $12.2 million impairment
    charge related to the valuation of its Canadian CP. See
    Note 5.  (19)
    Income
    Taxes    2007


2006


2005(In thousands)Income tax expense (benefit) allocated to:Loss from continuing operations before income taxes

$
(420,888
)

$
57,431


$
42,467Income from discontinued operations


1,066



35,173



13,778Other comprehensive income (loss)  foreign currency
    translation adjustments


106



(4
)


757Other comprehensive income (loss)  unrealized holding
    gain (loss) on marketable securities


2



(665
)


(2,467
)Other comprehensive income (loss)  pension adjustment


8,166



3,117



(1,430
)$
(411,548
)

$
95,052


$
53,105  90




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Current


Deferred


Total(In thousands)Year ended December 31, 2007:U.S. federal

$
(11,509
)

$
116,590


$
105,081Foreign


(556,833
)


460



(556,373
)State and local






30,404



30,404$
(568,342
)

$
147,454


$
(420,888
)Year ended December 31, 2006U.S. federal

$
3,910


$
12,091


$
16,001Foreign


43,138



(5,222
)


37,916State and local


606



2,908



3,514$
47,654


$
9,777


$
57,431Year ended December 31, 2005:U.S. federal

$
(4,279
)

$
22,327


$
18,048Foreign


19,442



4,327



23,769State and local


(2,599
)


3,249



650$
12,564


$
29,903


$
42,467     2007


2006


2005(In thousands)U.S.

$
(121,511
)

$
(29,351
)

$
(6,241
)Foreign


(29,346
)


9,152



3,177$
(150,857
)

$
(20,199
)

$
(3,064
)    91




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005(In thousands)Income tax benefit at federal statutory rate

$
(52,800
)

$
(7,070
)

$
(1,073
)Impact of taxation at different foreign rates


4,191



(1,725
)


143U.S. state and local income tax benefit, net of federal tax
    impact


(8,298
)


(1,462
)


(550
)Tax impacts of the disposition and liquidation of Canadian
    operations, including book and tax basis differences, foreign
    exchange differences and related items






(10,551
)


(7,431
)Provision for tax contingencies






29,042



607Reduction of tax contingency accruals due to the resolution of
    uncertainties(a)


(578,530
)


(39,297
)


(16,194
)Reversal of U.S. deferred tax benefits related to disposition
    and liquidation of Canadian operations(b)


157,344







Interest on tax contingency accruals, net of federal tax benefit
    on a portion thereof


47,967



81,523



53,680Items non-deductible or non-includible for income tax purposes


4,228



831



(2,817
)U.S. income tax expense (benefit) on intercompany and other
    transactions involving
    non-U.S.
    operations(a)


(28,797
)


2,241



4,621Increase in valuation allowance, net(c)


35,374



5,366



8,894Other, net


(1,567
)


(1,467
)


2,587Income tax expense (benefit) allocated to loss from continuing
    operations

$
(420,888
)

$
57,431


$
42,467     (a)
    
    During 2007, the Company reached an agreement with the Canada
    Revenue Agency (CRA) settling certain tax issues
    largely related to the disposition of certain Canadian
    operations in 2000. As a result of the settlement, the Company
    reduced its tax contingency accruals by $571.8 million and
    recorded a U.S. tax benefit of $14.9 million related
    to the deduction arising from the settlement.(b)
    
    The Company had recorded deferred tax assets for the
    U.S. tax benefits that were related to the 2000 disposition
    and liquidation of Canadian operations. Upon the settlement of
    the Canadian tax issues with the CRA, the Company reversed the
    U.S. deferred tax asset of $157.3 million and the
    corresponding valuation allowance.(c)
    
    The net increase in the valuation allowance in 2007 includes the
    effects of the following significant transactions. The Company
    recorded $193.5 million of increases in the valuation
    allowance to conform with its accounting policy that requires
    deferred tax assets be reduced to a level where they are more
    likely than not to be realized. The Company recorded a reduction
    of the valuation allowance in the amount of $157.3 million
    as described in (b) above.    December 31,2007


2006(In thousands)Deferred tax liabilities

$
106,907


$
139,240Deferred tax assets, net of valuation allowance


(48,564
)


(112,266
)$
58,343


$
26,974  92




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2007


2006(In thousands)Deferred tax assets attributable to:Accounts receivable, principally due to allowance for doubtful
    accounts

$
2,087


$
1,304Bad debt allowance on loan to subsidiary of Hollinger Inc.


13,474



Accrued expenses


20,502



13,012Postretirement obligations


15,365



18,198Investments


20,796



12,911Net operating loss carryforwards


38,508



5,261Claims for restitution


43,964



58,252U.S. tax benefit related to disposition and liquidation of
    Canadian operations


10,849



167,140Accrued interest and state income tax effects related to income
    tax contingent liabilities included in Other tax
    liabilities(a)


93,000



Capital loss carryovers


6,745



17,521Other


20,898



14,180Deferred tax assets


286,188



307,779Less valuation allowance


(237,624
)


(195,513
)Net deferred tax assets

$
48,564


$
112,266Deferred tax liabilities attributable to:Property, plant and equipment, principally due to differences in
    depreciation and deferred gain on exchange of assets

$
59,649


$
76,249Pension assets


23,502



11,148Deferred gain on disposition of Canadian Newspaper Operations


21,146



21,146Deferred tax on settlement






20,047Other


2,610



10,650Deferred tax liabilities

$
106,907


$
139,240     (a)
    
    At December 31, 2006, deferred tax assets of
    $75.6 million attributable to the U.S. Federal tax benefit
    related to interest and state income tax temporary differences
    had been netted directly against the accruals for those income
    tax contingent liabilities in Other tax liabilities.     93




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Balance at January 1, 2007(a)

$
717,067Reduction due to settlement with CRA


(377,798
)Additions for tax provisions of prior year(b)


16,891Reclassification of recoverable income taxes(c)


12,102Balance at December 31, 2007

$
368,262     (a)
    
    At January 1, 2007, the unrecognized tax benefits were
    included in Income taxes payable and other tax
    liabilities ($627.4 million) and Other tax
    liabilities ($385.4 million). U.S. federal deferred
    tax assets of $75.6 million attributable to interest and
    state income tax temporary differences had been presented as
    reductions of the income tax contingency accruals. (At
    December 31, 2007, the corresponding U.S. deferred tax
    assets of $93.0 million are presented as gross deferred tax
    assets).(b)
    
    Gives effect to contingent tax liabilities for tax positions
    that relate only to matters involving the timing of tax return
    inclusion. Because of deferred tax accounting, changes in the
    timing of inclusion of items in tax returns would not have a
    material impact on annual effective tax rates.(c)
    
    Gives effect to the reclassification of recoverable income taxes
    that had been presented as a reduction of Income taxes
    payable and other tax liabilities at January 1, 2007.     94




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (20)
    Earnings
    (Loss) per Share    Year Ended December 31, 2007Earnings


Shares


Per-Share(Numerator)


(Denominator)


Amount(In thousands, except per share amounts)Basic EPSIncome from continuing operations

$
270,031



80,446


$
3.36Effect of dilutive securities






215



Diluted EPSIncome from continuing operations

$
270,031



80,661


$
3.35     Year Ended December 31, 2006Loss


Shares


Per-Share(Numerator)


(Denominator)


Amount(In thousands, except per share amounts)Basic EPSLoss from continuing operations

$
(77,630
)


85,681


$
(0.91
)Effect of dilutive securities










Diluted EPSLoss from continuing operations

$
(77,630
)


85,681


$
(0.91
)  95




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31, 2005Loss


Shares


Per-Share(Numerator)


(Denominator)


Amount(In thousands, except per share amounts)Basic EPSLoss from continuing operations

$
(45,531
)


90,875


$
(0.50
)Effect of dilutive securities










Diluted EPSLoss from continuing operations

$
(45,531
)


90,875


$
(0.50
)     (21)
    Commitments
    and Contingencies  (a)
    Litigation  Litigation
    Involving Controlling Stockholder, Senior Management and
    Directors
  Hollinger International Inc. v. Hollinger
    Inc., et al. No. 04C-0698 Form 8-K Form 8-K/A
   96




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  7 8
      Black-Amiel (Black-Amiel),
    Black v.
    Hollinger International Inc.
   97




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Hollinger
    International Inc. v. Conrad M. Black, Hollinger Inc., and
    504468 N.B. Inc.
  
    Federal Indictment of Ravelston and Former Company
    Officials
    No. 3518-VCS,
  Hollinger
    International Inc. v. Ravelston, RMI and Hollinger
    Inc.
     98




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Black v.
    Breeden, et al.
          United
    States Securities and Exchange Commission v. Hollinger
    International Inc.
  Form 10-K Form 10-Q
 99




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    United
    States Securities and Exchange Commission v. Conrad M.
    Black, et al.
            CanWest
    Arbitration
   100




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    CanWest
    and The National Post Company v. Hollinger Inc., Hollinger
    International Inc., the Ravelston Corporation Limited and
    Ravelston Management Inc.
  National Post
    Class Action
    Settlement
    No. 04C-0834, and/or
   101




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Other
    Matters
      Other Matters
  (b)
    Guarantees
    or Indemnifications  (i)
    Dispositions  and/or
      (ii)
    Letters
    of Credit    (iii)
    Other   102




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (c)
    Canadian
    Ownership Matters        (d)
    Commitments    (22)
    Related-party
    Transactions    (a)
 103




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (b) Black-Amiel Black-Amiel  Hollinger International Inc. v. Ravelston,
    RMI and Hollinger Inc.
    (c)
 104




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    7 8
      (d) National
    Post
 105




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (e)
  (f)
  (g)
  (h)
    (i)
 106




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (j)
  (k)
  (l)
  (23)
    Liquidity
    Considerations  Cash
    and Cash Equivalents
  back-up
  Investments
      Corporate
    Structure
   107




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SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Factors
    That Are Expected to Affect Liquidity in the Future
  Potential
    Cash Outlays Related to Accruals for Income Tax Contingent
    Liabilities
    December 31, 2007(In thousands)Income taxes payable

$
1,027Deferred income tax liabilities


58,343Other tax liabilities


597,206$
656,576       Potential
    Cash Outflows Related to Operations
    and/or
   108




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##### Table of Contents



SUN-TIMES
    MEDIA GROUP, INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Other
    (24)
    Quarterly
    Financial Data (Unaudited)    2007First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(In thousands, except per share data)Total operating revenue(a)

$
91,717


$
94,744


$
92,539


$
93,258Operating income (loss)

$
5,679


$
(80,639
)

$
(23,227
)

$
(42,034
)Income (loss) from continuing operations

$
(4,823
)

$
527,980


$
(193,991
)

$
(59,135
)Net income (loss)

$
(4,823
)

$
527,980


$
(192,392
)

$
(59,135
)Earnings (loss) from continuing operations per basic share(a)

$
(0.06
)

$
6.57


$
(2.41
)

$
(0.73
)Earnings (loss) from continuing operations per diluted share

$
(0.06
)

$
6.56


$
(2.41
)

$
(0.73
)Net earnings (loss) per basic share(b)

$
(0.06
)

$
6.57


$
(2.39
)

$
(0.73
)Net earnings (loss) per diluted share

$
(0.06
)

$
6.56


$
(2.39
)

$
(0.73
)   2006First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(In thousands, except per share data)Total operating revenue(a)

$
102,794


$
107,788


$
99,485


$
110,312Operating income (loss)

$
(24,270
)

$
(13,711
)

$
(22,418
)

$
21,449Income (loss) from continuing operations

$
(26,593
)

$
20,121


$
(34,865
)

$
(36,293
)Net income (loss)

$
(7,755
)

$
20,574


$
(34,865
)

$
(34,627
)Earnings (loss) from continuing operations per basic and diluted
    share(a)

$
(0.29
)

$
0.23


$
(0.43
)

$
(0.45
)Net earnings (loss) per basic and diluted share(b)

$
(0.09
)

$
0.24


$
(0.43
)

$
(0.43
)     (a)
    
    Certain amounts previously netted against revenue in the first
    and second quarters of 2007 and in 2006 have been reclassified
    to expense to conform with the current years presentation.(b)
    
    Earnings (loss) per share is computed independently for each of
    the quarters presented. Therefore, the sum of the quarterly
    earnings (loss) per share does not necessarily equal the total
    for the year. 109